Should You Buy Alphabet Stock Right Now?

The slide would be easier to understand if the business were struggling, but it isn’t. Alphabet’s second-quarter report, delivered in late July, showed revenue growth accelerating and profit margins widening.

But the same report showed something investors aren’t used to seeing from this company. Free cash flow turned negative, as capital spending doubled from a year earlier in support of the company’s artificial intelligence (AI) build-out.

Image source: The Motley Fool.

Growth isn’t the problem

Showing how the business has sped up, Alphabet’s second-quarter revenue rose 24% year over year to $119.8 billion — an acceleration from 14% growth in the year-ago period and about 22% in the first quarter of 2026. Profits grew even faster. Operating income climbed 30% year over year, and the company’s operating margin widened from 32% a year earlier to 34%.

The growth was broad-based, too. Google Search & other revenue rose 17% year over year, and YouTube ads revenue rose 13%. And Google Cloud revenue jumped an impressive 82% to $24.8 billion, with the segment’s operating income roughly tripling to $8.8 billion.

I think the cloud profit figure is the most important number in the report. It means Google Cloud turned about 36% of its revenue into operating income, up from about 21% a year earlier. In other words, the AI capacity Alphabet keeps building is turning into revenue quickly, and at much better margins than the segment managed a year ago.

Clearly, demand isn’t the issue.

Negative free cash flow

The issue is what it costs to serve that demand. Alphabet’s capital expenditures were $44.9 billion in the second quarter — double the year-ago figure, after step-ups in each of the three quarters in between.

Free cash flow went the other way. Alphabet generated $24.5 billion of it in last year’s third quarter and $24.6 billion in the fourth. That fell to $10.1 billion in this year’s first quarter, and the second quarter came in at negative $5.9 billion. In other words, a business that was producing about $25 billion of spare cash a quarter is, for now, consuming cash instead.

And the spending is still climbing. Management raised its full-year guidance for capital expenditures to a range of $195 billion to $205 billion, up from an earlier $180 billion to $190 billion. It also said it continues to expect capital expenditures to rise significantly in 2027.

“[W]e expect the free cash flow will remain under pressure driven by our investments in technical infrastructure,” chief financial officer Anat Ashkenazi said on Alphabet’s second-quarter earnings call.

How the company pays for all of this has changed, too. Operating cash flow rose 41% year over year to $39.1 billion in the second quarter, but even that can’t cover a quarter’s capital spending anymore.

Alphabet spent about $28 billion buying back its own stock in the first half of 2025. In the first half of 2026, it bought back none.

Instead, the company raised $49.6 billion in June by selling new stock, including a mandatory convertible preferred stock that pays a 6.25% dividend. And it ended June with $98.2 billion of long-term debt, more than double where it started the year.

Time to buy?

The stock’s price-to-earnings ratio of about 17 makes shares look almost cheap. That figure is misleading, though. Reported earnings have been inflated by unrealized gains on Alphabet’s investments, including a $99 billion gain on equity securities that boosted second-quarter earnings per share by $6.26 all by itself.

Based on what analysts expect the company to earn next year, Alphabet’s forward price-to-earnings ratio is about 22 — down from about 27 on those same expected earnings at the stock’s mid-May high. For a company growing revenue 24% year over year with a widening operating margin, I’d argue that’s a reasonable price.

So, should you buy Alphabet stock right now? I’d consider it.

The four-month sell-off has repriced the stock while the business has kept accelerating, and Google Cloud’s improving profitability suggests the heavy AI spending is already earning a return.

Of course, the spending could stay ahead of the payoff for a while. Management expects higher depreciation expense from the new infrastructure to keep pressuring profits, and the capital budget is set to grow again in 2027. If Google Cloud’s growth cools sharply while the spending keeps climbing, I would rethink my view. We aren’t close to that today.

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